Riddle me this.

The market is currently presenting us with a difficult riddle.  The Bulls and Bears appear equally matched as the indexes hover just below price resistance levels and record highs.  Yesterday the Bears had an open invitation to push lower but lacked the conviction to get it done.  On the other hand, the Bulls showed a willingness to defend current levels but also lacked the conviction to move up to test resistance.  The riddle becomes even more complex with the current futures suggesting a flat open.

Should we buy hoping for a breakout or would it be better to take some profits and avoid adding additional risk?  Indeed a difficult riddle for traders to resolve.  My personal choice is to remain cautious and closely watch price action for directional clues.  I will avoid adding risk this close to price resistance but have a watchlist of good stocks ready to go if the bulls show some conviction.  If by chance the Bears attack I have profits locked with stop orders and ready to pick up some negative delta if necessary.

On the Calendar

Jobless Claims and PPI top the Economic Calendar today with both released at 8:30 AM Eastern time.  According to consensus estimates the weekly Jobless Claims expect an increase to 220,000 vs. last weeks 218,000 but remains near historic lows.  The PPI consensus is for a 0.3 percent monthly increase but exclude food, energy, trade services, and they forecast a 0.2 percent increase.  We have a Fed Speaker @ 9:30 AM, Wholesale Trade @ 10:00 AM, the Natural Gas Report at 10:30 AM, 4-Bond events 11:00 AM and 1:00 PM, with the Fed Balance Sheet & Money Supply closing the calendar day at 4:30 PM.

Today we have another big day of earnings with more than 380 companies fessing up to their results.  There are still a lot of companies yet to report this quarter but today marks the last of the very big day of reports this earnings season.

Action Plan

The Bears had an opportunity yesterday to move the market lower, but the Bulls dug in and showed a willingness to defend back.  As good as that was to see, sadly the Bulls lacked the energy required to be very convincing.  With the exception of the QQQ which managed a 0.12 increase the rest of the indexes finished the day slightly lower leaving us with more question than answers.

The Bulls defending this close to resistance levels and record highs in the QQQ and SPY suggests a desire to move higher.  However, their lack of conviction keeps alive the concern that the resistance above could be stronger than there desire.  Currently, the futures suggest a flat open which is not helping with this conundrum.  Long story short we need remain cautious this close to resistance levels and stay focused on price action.

Trade Wisley,

Doug